Kenneth J. Terry. Medscape. Jan 13, 2016.

Employment Is Not a Panacea

The environment for independent physician practices has fundamentally shifted in the past few years. In many parts of the country, hospitals are much less interested in acquiring practices than they had been. However, they continue to look for ways to more closely align independent physicians with their interests.

Meanwhile, the shift to value-based reimbursement—among other factors—is placing smaller practices at a disadvantage. Even where physicians have learned how to use electronic health records (EHRs) effectively in traditional, visit-based care, they need a more sophisticated infrastructure and additional resources to manage their patient population.

As a result of these changes, experts say, independent physicians should start thinking about how to form clinically integrated networks with their colleagues. They should also look at every possible way to make their practices more economically viable in order to compete with the big healthcare systems.

For physicians who see the changes coming but still don't want to be employed, there are alternatives to employment that physicians should consider.

Hospital Acquisitions Are Slowing Down

The experts we interviewed agreed that the pace of hospital practice acquisitions has slowed considerably, although the situation differs in various markets across the country.

David Zetter, a practice management consultant based in Mechanicsburg, Pennsylvania, says, "It's down tremendously because hospitals probably have as many practices as they can handle at this point." A number of Zetter's clients tried to sell their practices recently. The local hospitals either weren't interested or offered them practically nothing for their assets, he says.

Hospitals on the East Coast and in parts of the South are still buying practices, says Michael LaPenna, a healthcare consultant in Grand Rapids, Michigan. But in areas where most of the consolidation between hospitals and practices has already occurred, such as west Michigan, Detroit, Chicago, Minnesota, Seattle, and California, that's no longer the case, he says.

Kevin Kennedy, a principal with ECG Management Consultants in Seattle, has also seen fewer hospital purchases of practices. "Some health systems grew very rapidly, and there was a feeding frenzy to acquire practices," he notes. "So in the last couple of years, we've seen some of our clients take a break and do a better job of organizing what they have."

In some markets, he adds, there are virtually no private practices left. In others, some physicians have hung onto their shingles, despite hospital overtures. "They value independence more than economics or future security. So there are cultural reasons why integration with a hospital would be difficult."

In markets where private practices are still alive and well, hospitals are trying to align with them in other ways. They may offer management services, subsidies and technical support for EHRs, or medical directorships. But their ultimate game plan is to get the independent doctors involved in their clinically integrated networks, which will eventually take financial risk for care and lose bonus payments if they do not reach their target costs for providing care.

Harder and Harder to Go It Alone

Whether you want to do that may depend on the financial stability of your practice and on how much you prize your autonomy. But as value-based reimbursement expands, small practices will find it increasingly difficult to go it alone, the experts point out. If they don't want to fall into the hospital orbit, they'll have to form a certain kind of physician organization. However, they can still do business with the hospital.

"Affiliations [with hospitals] are worth considering, but it doesn't mean you have to give up your autonomy to link with like-minded physicians," says Alice Gosfield, a veteran healthcare attorney based in Philadelphia. "Clinical integration is the sine qua non for all physicians, no matter what environment they're living in—whether they're employed, or in an independent practice association (IPA) or a mega group, or in a clinically integrated network."

Medical Directorships

One way in which hospitals try to align doctors with them is by offering them medical directorships. Fewer of these part-time posts are available than in the past, Kennedy says, because hospitals tend to fill them with employed doctors as they build integrated delivery systems. "That model is still out there, but it's not anything that will help you survive."

Nevertheless, some medical directorships can pay well, Zetter points out. He cites a physician who recently took such a post in a mental health facility where he also provides services. He'll make an additional $50,000 a year in revenue for performing medical director duties 4-8 hours a week.

There are also new types of medical directorships, LaPenna notes. He has seen some healthcare organizations pay independent practitioners extra to be "transition doctors" who help handle the transitions of patients from the hospital to home or skilled nursing facilities to prevent readmissions. Other physicians are being recruited by some hospitals to do telemedicine in their spare time, he says.

Comanagement Agreements

The comanagement of hospital service lines or ambulatory surgery centers owned by hospitals is mainly an opportunity for specialists such orthopedists, cardiologists, and urologists, the experts say.

A comanagement agreement, which usually covers multiple practices in the same specialty, sets up a separate legal entity with joint hospital and physician governance. Incentives based on quality metrics are paid to the individual doctors. But if the goal is to standardize the use of certain devices or implants, the incentive would go to the participants as a group and be divided among them, explains attorney Bruce Johnson, Esq, a partner in the Denver law firm of Polsinelli Shughart PC.

Comanagement gets physicians more involved in hospital activities; less commonly, it extends to the outpatient side, Gosfield notes. "It represents a way for physicians to help the hospital, align what they're doing, and get more money that's not CPT money."

To comply with Medicare regulations, the reimbursement can't be based on length of stay or for referring patients to the hospital, she points out. But hospitals can reward doctors for getting better results and increasing efficiency, usually by meeting a set of predetermined targets.

"One of the principal values of a comanagement agreement is that it focuses the physicians' and the hospital's attention on things like OR efficiency and cath lab efficiency," explains Johnson. "The hospital can get its doctors looking at device costs and certain aspects of quality, such as surgical infection rates. The win for doctors is that they can get some money out of it, although typically the money is less than what anyone wants."

Management Services Agreements

A prime challenge in private practice is the growing cost of overhead. Many smaller practices have outsourced their billing or their revenue cycle management (RCM) in an effort to reduce overhead and cope with the increased complexity of billing. Management services organizations (MSOs) have traditionally offered not only RCM services but also supply purchasing and other back office services.

According to LaPenna, MSOs are growing again because information technology has become too complex for most private practices. In some cases, this is just a matter of independent practices sharing back office and IT functions, perhaps through an IPA. Entrepreneurs are also starting MSOs that manage small practices, he says.

LaPenna is also seeing hospitals use MSOs or MSO-like services to provide technical support to practices that have received Stark subsidies from those hospitals to purchase EHRs. In that case, the practice must pay for the technical support at fair market value. If the hospital can get the practice on the same EHR that its employed physicians use, the independent practices are more aligned with the hospital.

Some hospitals may provide additional management services, he notes, or manage entire practices. The fee for doing the latter can range up to 15% of practice revenue.

Zetter agrees, noting that hospitals may provide these management services in lieu of purchasing the practices. But Gosfield says that the MSOs she sees are usually created by IPAs rather than by hospitals.

Professional Service Agreements

In a professional service agreement (PSA), a hospital or healthcare system leases a practice and guarantees the physicians a minimum level of income. While this model is similar to employment, the physicians retain ownership of the practice and can usually terminate the PSA if the relationship goes south.

Gosfield views PSAs as much better deals than employment contracts. Under a well-structured PSA, she notes, a group retains its cohesion as a business, including the ability to hire and fire staff. "If you hang onto your personnel, you get to deal with them the way you need to deal with them," she observes.

Kennedy takes a different view. If a hospital is willing to enter a PSA with a practice, he says, the physicians need not be too worried about staffing decisions. "A hospital would have to be pretty stupid and incompetent to ignore the input of physicians on staffing issues."

Some PSAs allow practices to continue billing because many hospitals do a poor job of billing for ambulatory care, Gosfield notes. In most PSA deals, reimbursement is based on work relative value units (RVUs), not collections; so even if a hospital comes up short on collections, physician income is not affected, at least in the short term. But if the practice keeps the billing and helps the hospital meet its financial targets, the physicians can renegotiate the PSA contract on more favorable terms.

Kennedy agrees that hospitals are not good at ambulatory care billing, but he doesn't think that this is a big issue for doctors. "If physicians are being paid on the basis of collections, they may want to be closely involved with the revenue cycle process. If they're paid on work RVUs, as most folks are these days, they're probably less concerned."

PSAs offer some advantages to both physicians and hospitals, Kennedy says. "It's a useful tool kit for solving certain types of problems. There are reasons why employment won't work in certain settings." For example, he notes, hospitals can't directly employ doctors in corporate-practice-of-medicine (CPM) states. (The CPM laws generally prohibit a business corporation from practicing medicine or employing a physician to provide professional medical services. Some states have carved out certain corporate employers such as HMOs, professional corporations, and hospitals as exceptions to the CPM prohibition). “And in some cases, physicians want to keep managing the practice while having the security of an income guarantee from the hospital."

But, as healthcare systems become more integrated, he adds, they're less willing to accept one-off exceptions for some practices. In other words, they may tell physicians to sign employment agreements or take a hike.

Captive PCs

In CPM states, hospitals use captive professional corporations (PCs) so they don't have to employ physicians directly. By placing the ownership of the practice in a PC controlled by the hospital, captive PCs can also give doctors the feeling that they're still owners rather than employees, LaPenna notes.

The captive PC has another benefit, Gosfield says, even in non-CPM states. Physicians in a captive PC can bill for nurse practitioners or physician assistants on an "incident to" basis because both they and the nonphysician clinicians work for the same PC. They can't do that if they work directly for the hospital.

In addition, they can get credit for services that nonphysician practitioners bill under their own provider numbers at 85% of the Medicare rate. While neither this nor the "incident to" is fee-for-service income to doctors, it can be factored into the doctors' compensation through the captive PC, she says.

Non-hospital-Related Opportunities

Physicians' nonemployment opportunities are by no means limited to those offered by hospitals. Some physicians organize clinically integrated IPAs and MSOs with their colleagues, and groups of small practices have formed many of the more than 600 accountable care organizations (ACOs). Bundled payments are another new opportunity for IPAs, although most of those arrangements do involve hospitals.

Clinically integrated networks can contract directly with employers, Gosfield says. These direct contracts may involve bundled payments or enhanced care management, rather than capitation or global risk, she adds.

LaPenna advises physicians to look for an IPA or a physician-hospital organization that will enable them to negotiate higher rates or participate in new value-based payment models. But they must manage their patients in ways that align with these emerging payment structures, he adds. "So the changing reimbursement landscape in their local area gives them a signal on how to behave."

Many clinically integrated IPAs are being formed, he notes, "but we're not sure how many will be successful because they're newly formed and on the bleeding edge of this technology." Among other things, IPA members have to find a way to exchange information among their disparate EHRs, and so far, "interoperability has been an absolute failure," he points out.

ACOs: Are They Right for You?

To date, ACOs have been more hype than substance, Gosfield argues. "They exist" in areas where she has clients, "but most of them don't have contracts."

Bundled payments are more likely than ACOs to succeed, she says, because they apply to a particular patient's condition rather than an entire population. Through the use of actionable data, she notes, physicians can intervene to improve care. In contrast, ACO contracts don't provide a specific focus for improvement.

LaPenna doesn't write off ACOs so quickly. "The projections of capitation and bundled pricing programs are imbedded within the Affordable Care Act," he observes. "CMS is already moving in that direction, and once ACOs are established and ingrained with the medical reimbursement fabric, they won't go away easily."

Zetter doesn't dismiss ACOs either, but he advises physicians to look at each one carefully. "ACOs have a lot of variations, and you have to ask serious questions before you join one," he says. "Why do you want to join, how will it benefit the practice, who will make decisions on how benefits are derived, and what's the risk?"

Kennedy is skeptical of ACOs. They must be of a certain size to qualify for the Medicare Shared Savings Program, he points out, and they're also responsible for the entire cost of patient care. "That's hard to do unless you're part of an integrated healthcare system or a large group that has hundreds of doctors."

Overall, he concludes, "The outlook is still fairly good for independent practices of a certain scale." The healthcare system increasingly emphasizes ambulatory care, he points out, and the physician-patient relationship will be increasingly important in healthcare reform. So office-based physicians will always be needed, whether or not they're employed.

"That being said, smaller independent practices are going to struggle," he says. "There are going to be some very successful physician organizations. But they have to achieve a pretty large scale to be meaningful in those markets and to provide the sorts of services those organizations are going to need to be successful."

Conclusion: Whichever option you think is right for you, make sure you examine the pros and cons thoroughly. Talk to physicians who are already in that situation, and take your time to decide which is most likely to bring you financial and emotional rewards.

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